With debt amounts rising year after year, people are now scared to think about retirement. Read to know more about retirement savings and how to manage credit card debt.
One should start doing retirement savings and wealth building at least by age 30, if not very early.
But nearly 40% of millennials have absolutely no idea, what to do in their retirement days, or even if they are capable enough to retire.
Why is it so? The answer could be plain and simple “Consumer debts”, and for some , existing long term debts.
But whatever the case is, the most annoying of those debts is the credit card debt.
In this post I will try to break down the topic- “Retirement savings- and how to manage credit card debt”, and will answer questions like how to save for retirement, how to control debts, frugal living, and etc.
How to budget and save for retirement?
If you are in your 30’s or even say 40’s, then it’s high time you should start to worry about retirement.
At present, you have the potential to do extra job and take up side hustles, but you won’t hold the same energy in your retirement days. Hence you must consider yourself to be immobile in your retirement days and plan with the worst case scenario in mind, and save accordingly.
There are many ways you can plan for retirement.
My first suggestion would be to diversify your savings strategy, and not completely rely on employee sponsored savings plans.
An IRA, 401(k), is obviously good, but having personal savings, that can be accessed anytime you want, is something else.
To build nice personal savings, there has to be a budget. So I want you to follow the zero based budgeting.
Every month when you get your salary, you make a long list of expenses. Your deductions from salary for savings accounts will also fall in the list of these expenses.
Now each month, you will be listing all of your probable expenses, and assign values to them. The listing should be made as per priority.
Debt payments and savings will come first, then your household and utility bills, transportation costs and etc.
Once done with the listing, add up all the amounts you allocated for each of your expenses. If the sum is equal to your salary, then you have successfully accomplished zero based budgeting for that month.
Even after listing all your to-do expenses, if you see that you are left with some extra dollars from your salary, then you can use that cash to do more savings, or punch it to luxury spending!
You can also try investing in bonds, or mutual funds, or also buy real estates that have huge probability of inflation in the future.
How to handle Credit card debt in retirement approach?
Many millennials believe in the YOLO (You Only Live Once) philosophy, and are least worried about retirement.
Even though they have a good source of income, they barely do any savings, love to work hard and party harder.
But this YOLO philosophy can actually be dangerous, if you are not careful, and don’t know where to draw line to your personal finances.
Such lifestyle brings in enormous consumer debts into your life, of which credit cards top the list. Given the high interest rates on credit cards, they become hungry beasts that are sometimes very difficult to get rid of.
As it gets impossible to clear credit card debts in the normal procedure, one has to find out how to eliminate debt in differet ways.
It is also highly advised not to drag your existing debts into retirement days.
Debts are liabilities and the worst part is they only grow on interests with time. So regulate your spending and maintain a lifestyle from now on that won’t encourage you to do haphazard spending.
Here are a few tips for you, to build savings and managing credit card debt in retirement:
- Heads down to frugal living:
First you need to mend your lifestyle, then only can you steer away from debts.
Impulsive spending, and abrupt expensive decisions are the main root to debt problems.
Try to pay with cash for your day to day expenses, and keep those credit cards away from your eyesight.
Only use those cards in times of emergency, or if you need to get hold of an item badly, but the cash will only be available next month.For people with moderate income, they can cut down on household costs, and gas costs and many more.
Remember frugal living is dead against luxury spending.
Here necessary spendings come as the biggest priority. So you should learn to differentiate between needs and wants. Where former is necessity and the latter is luxury.
- Use debt avalanche for clearing credit card debts:
With debt avalanche you make extra payments for the credit card that has the highest interest rate, while doing minimum payments for the rest of your cards.
Once you are done with the highest rate card, target the next card that comes in the decreasing order of interest rates.With debt snowball you target the smallest amount of credit card debt first, and make extra payments for this debt, while doing the minimum payments for the rest of your debts.
Once you clear the smallest debt, you target the next debt that comes in the ascending order. For this debt you add the payment amount from the previous cleared debt and do extra payments.
Suppose you have 3 credit card debts:
Debt 1: $500 (min payment- $50)
Debt 2: $600 (min payments- $70)
Debt 3: $700 (min payments- $90)For Debt 1, you can make an extra payment of $10.
So you pay $60 ($50+$10 extra) for Debt 1.
Once you clear Debt 1, you make a payment of $130 ($70 + $60) for Debt 2.
Once you clear Debt 2, you make a payment of $220 ($130 + $90) for Debt 3. You keep on going like this.Debt snowball might give you a moral boost, as you clear the lowest debt in no time, but debt avalanche is more effective, as you first clear the hungriest debt that has the highest interest rate, despite the debt balance.
I personally prefer debt avalanche as it yields fruitful result in the long term, unlike debt snowball, where you might find it difficult to get rid of the final big debt.
- *If you are already in your retirement days and have no dependents:
This is risky but can actually work out well, if you are the sole survivor and inheritor of your wealth, property and family.
You can take out a reverse mortgage, where you will get steady payments against your home equity. The money you can use to clear debts and other liabilities.
You can cash out your life insurance, or even take out a HELOC or home equity loan, whatever suits you the best.
But these are very risky methods to eliminate debts. Have a talk with a financial counselor before taking such decisions.
That’s all I had to say for today.
I believe that our country can still come out clean from the trillions of debt that it’s facing in the current global economic market. But we the citizens are completely responsible for such huge consumer debts that we have incurred in the past decades.
So be frugal and sensible, and live a debt free retirement life, with enough savings to enjoy.
Author Bio: Andy Masaki is a blogger and contributor at Oak View Law Group. He is a debt expert and a member of several online forums where he shares his advice as well as tips to lead a financially independent life.
None of us is as smart as all of us. Financiallypossible is constantly seeking contributions from other authors. While the primary focus for the financiallypossible blog is social change, any topic that enhances the financial education of our community at large is greatly appreciated!